CIMA Paper E2 Enterprise Management Notes
Contents 1. About ExPress Notes 3 Strategic Management & Assessing the Competitive Environment 2. Developments in Strategic Management 14 3. Project Management 16 4. Project Management Tools 21 5. Project Management Teamwork & Quality 28 6. The Effective Operation of an Organisation 32 7. Managing People 36 8. Corporate Governance & Ethics 42 7 Page 2
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Chapter 1 Strategic Management & Assessing the Competitive Environment START The Big Picture This chapter introduces us to a variety of methods of analysing the competitive environment faced by an organization. PESTEL (or PEST or SLEPT) Analysis An analysis of the external macro environment. The organisation is unlikely to be able to influence these factors but it should have an awareness of the issues. Political - global, national and local changes and trends. Taxation policies. Relationships between certain countries. Economic - global, regional and local issues. Exchange rates. Link to topical issues such as global recession, current interest rates for funding. Social - changes in behavior and expectations in society. Demographics, lifestyle. Page 7
Technological - changes including hardware, software, e-issues, materials and services. Global communications. Environmental what are the environmental considerations such as recycling, pollution, attitude of the media, customers, etc. Legal - changes and predicted changes to regional (e.g. EU) and national legislation. Regulatory bodies. Changes to employment law. Stakeholder mapping Stakeholders are individuals, groups or organisations that can impact or be impacted by, an organisation. Mendelow s Matrix allocates stakeholders into quadrants according to their level of power and how likely they are to exercise that power (i.e. their interest). Stakeholder Power Low High Low Stakeholder Interest Minimum effort Keep informed Keep satisfied Key players High SWOT analysis Strengths (internal) e.g. resources and capabilities Opportunities (external) e.g. arrival of new technology Weaknesses (internal) e.g. lack of certain resources or capabilities Threats e.g. arrival of substitute product Page 8
Primary Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Support ExPress Notes Threshold resources and competencies: These are the minimum required by an organisation to meet customer s minimum requirements. In effect, this is what is required to stay in business. Core competencies: These are processes and activities undertaken by an organisation which are seen as being central to their success. Core competencies are capabilities which are critical to a business achieving competitive advantage. They provide customer benefits and are difficult for competitors to imitate. A core competency can take many forms such as technical knowhow or customer relationships. Amazon.com has a number of core competencies such as reliable and efficient online ordering and delivery system. Porter s value chain Support Activities Firm Infrastructure Human Resource Management Technological Development Procurement Primary Activities The value chain was introduced by Porter and represents an approach to looking at the development of competitive advantage within an organisation. All organisations consist of activities which link together to develop the value of a business. Together these activities represent the value chain. Page 9
The value chain represents a series of activities that both create and build value. Combined they represent the total value delivered by an organisation. The margin in the diagram is the added value (the difference between the total value of the activities and the cost of performing them). Primary activities: related with production. Support activities: provide the background for the effectiveness of the organisation (e.g. HRM) Data for environmental analysis Data for environmental analysis can be obtained from a number of sources: Official government sources (e.g. trade reports) Online specialist subscription databases (e.g. Reuters) Online publically available information (e.g. corporate websites) Private intelligence agencies (e.g. Dun and Bradstreet) Tailored research (e.g. market surveys, discussion groups) Quantitative research analysis of numerical data more objective statistical tests e.g. data provided by customers Qualitative research analysis of words more subjective could use focus groups or interviews e.g. opinions of customers Page 10
Porter s 5 Forces This model examines the role of 5 forces close to an organisation that impact on its ability to make a profit and hence how attractive a particular market or industry is. There are 5 forces as follows: Entrants Suppliers Competition Customers Substitute 1. Threat of substitute products If there are similar products, a customer will be more likely to switch rather than stay with a product when there are price rises (elastic demand). 2. Competitive rivalry The rivalry will depend on the number and strength of competitors, economies of scale and exit barriers. Page 11
3. Threat of new entrants Markets generating high returns will attract new entrants which in turn could reduce industry profits. Barriers to entry such as government licenses (mobile phone operators) are important in reducing the threat of new entrants. 4. Power of customers The stronger the power of the customer the more pressure it can place on the company. Issues to consider include the size of the customer relative to the firm s customer base, switching costs and availability of substitute products. 5. Power of suppliers Suppliers of materials and services can exercise power over an organisation. This depends on the level of differentiation of the product, presence of substitute products, etc. Compare the power of Intel supplying computer chips to the computer industry vs. a sugar producer supplying sugar to a soft drinks manufacturer. Porter s Diamond This is a model outlining the theory why certain industries are competitive in particular locations. There are 4 broad factors within the diamond. Factor Conditions Firm Strategy & Structure Demand Conditions Related & Supporting Page 12
Factor conditions include physical resources, human resources and specialised resources. Demand conditions. A country with sophisticated home buyers who demand quality, advanced and innovative products can create international competitiveness Related and supporting industries can produce inputs for a company which feed into the success of the business. Firm strategy, structure and rivalry. Competition in the home market drives innovation and quality. Protectionism can weaken a market. Page 13